Posted by: Peter Burrows on October 22, 2009

Earlier today, I spoke with Lala Media founder Bill Nguyen as he stood in the lobby of Warner Music’s headquarters in New York. The always animated Nguyen was more animated than usual—and for good reason. He’d just finished a day when the world learned that his little-known company was going to be the engine behind new digital music offerings from Net behemoths Google and Facebook. He wasn’t just excited about the magnitude of the possibilties, but by the fact that none of the news was supposed to happen so soon. “It was all totally unplanned and unexpected,” he said.

Here’s what happened. He’d gone to New York for an entirely different reason: to show music label executives and reporters a version of Lala’s music service designed as an app for Apple’s App Store. But then news broke, first by TechCrunch, that Google planned to use Lala’s service as a back-end infrastructure for a new music search feature to enhance its overall search offering. Suddenly, Nguyen, who declined to comment on the Google rumors, was no-commenting his way through interviews as reporters asked for details.

Then things got wilder, when Facebook suddenly pushed up its announcement that it, too, planned to unveil a Lala-based music plan. Rather than stick to its plan to begin a limited roll-out to a small percentage of Facebook users later this week, suddenly the social networking giant confirmed its overall plan. “All of a sudden, it was like ‘we were launching right now,’” says Nguyen.

Mind you, he’s not complaining. He thinks traffic from Facebook alone could increase the number of songs doled out from Lala’s servers by an order of magnitude above the 5 million or so songs it currently delivers each month. While he won’t comfirm the Google deal, it’s pretty clear it’s coming. Google has sent out invitations to announce an Oct. 28 event at a historic Hollywood concert hall to announce a music-related offering. Judging from the invitation, Lala is a part of the news.

All of this represents a quick culmination of many months of deal-making by Nguyen and Lala CEO Geoff Ralston, a former Yahoo executive. Their pitch has been that there needed to be a return to basic economics when it comes to music. Rather than using music to sell hardware (a la Apple) or to sell advertisements (a la iMeem, MySpace, Spotify and others), they argued that consumers would buy music if it was easy and affordable to do.

Lala’s model is to let consumers on the Web listen to any of the eight million songs in its database for free, but just once. After that, they could opt to buy a streamed version of the song, dubbed a Websong, for $.10. Or, if they wanted to listen when they werent online, they could pay $.99 for a regular MP3 download.

But since the masses weren’t beating a door to Lala’s servers, the company needed to land a Google or Facebook to achieve critical mass. Now, it has both. And both companies seem to have inventive plans that could well have mass appeal. Facebook plans to let people buy songs (either those Websongs or the pricer MP3s) for friends, from its virtual gift store. Nguyen envisions a time when Facebook users will habitually buy friends or family members a song on their birthday, on holidays or on other occasions. “Why not give people something they’d actually want, rather than a virtual carnation,” he laughs. And he sees the phenomenon getting viral, as song purchases show up on millions of Facebook status updates. “Once someone gives you a song, all your other friends will know. And some of them will say, ‘oh, of course Id like to send you a song for your birthday, too.’”

Neither Lala or Google are confirming their plan. But if the many press accounts are correct, it is similarly intriguing. Once a Googler enters a query in the Google search bar, they’ll get a link that lets them actually listen to the song, as opposed to just getting the usual collection of lyrics sites, Wikipedia entries and the like. (Not all of these songs will be doled up via Lala. According to reports, some will come via iLike and possibly other digital music services.) Here are screenshots, courtesy of TechCrunch.

Whats it mean for Lala? Nguyen says the company will get a majority of revenue from sales made through Facebook. He says its similar to the cut app developers get from Apple, which is 70% of revenues. Facebook declined to confirm this, saying that it doesnt disclose financial terms of its gift offers.

Regardless of what the terms of the deal with Google turn out to be, Lala is likely to grow far more rapidly than in the past. And Nguyen doesn’t sound concerned about Lala’s ability to make a profit on the larger revenue base. “We’ve always been a company that invested heavily in the engineering, but we’ve never lost money on the music itself.”

Of course, it’s never had to deal with tens or hundreds of millions songs a month. As such, there remains the small question of execution. But if Nguyen & Co. can keep up with rising demand, the 35-person start-up may emerge as a company to reckon with amid thd digital music industry’s walking wounded. Never one to shy away from a bold prediction, he says that “I think we’ll be one of the top two or three retailers of music within a year.” That suggests that while Apple’s lead is safe, little Lala might catch Wal-Mart and will likely pass Best Buy, Amazon, Target and Borders.

Reader Comments

vivek goel

October 22, 2009 5:39 PM

great

Patrick

October 24, 2009 4:13 PM

Great article Peter, very well written.

I had a book published on Facebook Statuses earlier this year entitled 'is: The Phenomenon of the Facebook Status' (www.theisbook.com) and I really could have done with reading this article then.

Keep up the good work mate, and I look forward to more of your articles.

Patrick

Mickey Carroll

October 26, 2009 7:57 PM

This is just some input from a seasoned song writer musician .

I think song writing should be paying attention to world community in regard to it's struggle with life experience . Example ( Song For My Son ) is a song about children weapons or a son away at war . It is culturally diverse because of it's performance .This song has over 52.000 views and growing on You Tube . Cultivating a more personal relationship with your listener in these times is where everything is going . I invite you to view it and hope you enjoy

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.